Rogers Delivers Strong Q4 Earnings; Accelerates Capacity Investments

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Rogers Corporation announced financial results for the 2018 fourth quarter and full year.

Fourth Quarter 2018

The Company reported 2018 fourth quarter net sales of $222.9 million compared to 2018 third quarter net sales of $226.9 million and 2017 fourth quarter net sales of $209.0 million. Net sales for the 2018 fourth quarter were above midpoint of the Company's previously announced guidance of $215 to $225 million. Currency exchange rates unfavorably impacted 2018 fourth quarter net sales by $2.1 million due to weakening in the Euro and Renminbi compared to 2018 third quarter net sales and $3.1 million compared to 2017 fourth quarter net sales.

Earnings for the 2018 fourth quarter were $1.31 per diluted share compared to $1.06 per diluted share in the third quarter of 2018 and $0.37 per diluted share in the fourth quarter of 2017. Earnings per diluted share were above the Company's guidance range of $0.84 to $0.99. On an adjusted basis, earnings were $1.67 per diluted share for the 2018 fourth quarter compared to adjusted earnings of $1.42 per diluted share in the third quarter of 2018 and $1.36 per diluted share in the fourth quarter of 2017. Adjusted earnings were above the Company's guidance of $1.20 to $1.35 per diluted share. Earnings for the 2018 fourth quarter were influenced by a significantly lower effective tax rate.

Fourth quarter 2018 net income was $24.5 million compared to $19.7 million in the third quarter of 2018 and $7.0 million in the fourth quarter of 2017. Adjusted EBITDA was $44.0 million for the fourth quarter of 2018 compared to $47.5 million reported in the third quarter of 2018 and $38.1 million reported in the fourth quarter of 2017. 

Gross margin was 35.2% in the fourth quarter of 2018 compared to 34.9% in the third quarter of 2018 and 36.1% in the fourth quarter of 2017. Operating margin was 12.0% in the fourth quarter of 2018 compared to 13.1% in the third quarter of 2018 and 8.9% in the fourth quarter of 2017. Adjusted operating margin was 16.0% in the fourth quarter of 2018 compared to 17.0% in the third quarter of 2018 and 13.0% in the fourth quarter of 2017.

Full Year 2018

The company reported 2018 net sales of $879.1 million. Net sales for the full year 2017 were $821.0 million. Net sales during 2018 were favorably impacted by $15.5 million as a result of currency fluctuations, due to a stronger Euro and Renminbi.

Earnings for full year 2018 were $4.70 per diluted share, compared to $4.34 per diluted share for full year 2017. On an adjusted basis, earnings were $5.77 per diluted share for full year 2018, compared to $5.76 for full year 2017. Earnings for full year 2018 were influenced by a significantly lower effective tax rate.

Full year 2018 net income was $87.7 million, compared to $80.5 million for full year 2017. Adjusted EBITDA was $173.6 million for full year 2018, versus $189.7 million for full year 2017.

Gross margin was 35.4% in 2018, compared to 38.8% in 2017. Operating margin was 12.8% for full year 2018, compared to 15.7% in the full year of 2017. Adjusted operating margin was 15.8% in the full year of 2018, compared to 18.3% in the full year of 2017.

“In 2018, we accelerated capacity investments as the outlook for key applications in Advanced Connectivity and Advanced Mobility strengthened significantly,” stated Bruce D. Hoechner, Rogers' President and CEO. "Margins were challenged by the operational initiatives underway as we prepare for the significant growth opportunities in 5G wireless infrastructure, EV/HEV and Advanced Driver Assistance Systems. While we saw some softness in Q4 2018 demand that will carry forward into Q1 2019, the investments we are making today across the enterprise will enable Rogers to capitalize on these opportunities that we see accelerating in 2019."

Business Segment Discussion

Advanced Connectivity Solutions (ACS)

Advanced Connectivity Solutions reported 2018 fourth quarter net sales of $72.5 million, a 0.9% increase compared to 2018 third quarter net sales of $71.9 million and a 4.0% decrease compared to 2017 fourth quarter net sales of $75.5 million. The sequential increase in 2018 fourth quarter net sales was largely driven by growth in high frequency circuit materials for 5G antenna and aerospace and defense applications, partially offset by lower demand for wireless 4G LTE power amplifiers. Fourth quarter 2018 net sales were unfavorably impacted by $0.8 million due to fluctuations in currency exchange rates compared to 2018 third quarter net sales and by $1.0 million compared to 2017 fourth quarter net sales.

Elastomeric Material Solutions (EMS)

Elastomeric Material Solutions reported 2018 fourth quarter net sales of $88.3 million, a 7.8% decrease compared to 2018 third quarter net sales of $95.8 million and a 16.2% increase compared to 2017 fourth quarter net sales of $76.0 million. The sequential decrease in 2018 fourth quarter net sales was due to lower seasonal demand in portable electronics as well as weaker demand in general industrial and automotive applications. Fluctuations in currency exchange rates unfavorably impacted net sales by $0.7 million in the 2018 fourth quarter compared to 2018 third quarter net sales and by $0.9 million compared to 2017 fourth quarter net sales.

Power Electronics Solutions (PES)

Power Electronics Solutions reported 2018 fourth quarter net sales of $56.8 million, a 2.8% increase compared to 2018 third quarter net sales of $55.2 million and a 9.2% increase compared to 2017 fourth quarter net sales of $52.0 million. The 2018 fourth quarter sequential increase was due to higher demand for rail applications, partially offset by lower demand for variable frequency motor drives. Fourth quarter 2018 net sales were unfavorably impacted by $0.6 million due to fluctuations in currency exchange rates compared to 2018 third quarter net sales and by $1.1 million compared to 2017 fourth quarter net sales.

Other

Other reported 2018 fourth quarter net sales of $5.4 million, up $1.4 million compared to the third quarter of 2018 sales of $4.0 million.

Balance Sheet and Other Highlights

Cash Position

Rogers ended the fourth quarter of 2018 with cash and cash equivalents of $167.7 million, a decrease of $13.5 million from $181.2 million at December 31, 2017. The primary drivers of the lower cash balance were acquisitions completed in the third quarter of 2018 for approximately $121.4 million and capital expenditures of $47.1 million, partially offset by increase in net borrowings of $96.3 million and net cash provided from operating activities of $66.8 million.

Effective Tax Rate

Rogers' effective tax rate was 3.6% for the fourth quarter of 2018, compared to 31.0% for the third quarter of 2018. The decrease was primarily due to the implementation of tax strategies late in the fourth quarter which significantly lowered our foreign taxes and facilitated the reversal of reserves associated with uncertain tax positions. Recently issued U.S. tax legislation benefited our 2018 fourth quarter tax rate.

Rogers' effective tax rate for 2018 was 20.7% compared to 39.5% in 2017. The 2018 rate decrease was primarily due to a lower U.S. statutory tax rate and the absence of the transition tax impact on the current year, as a result of U.S. Tax Reform, as well as the benefits impacting the fourth quarter discussed in the above paragraph.

Financial outlook

Rogers guides its 2019 first quarter net sales to a range of $220 to $230 million and gross margin to a range of 35% to 36%. Rogers guides its 2019 first quarter earnings to a range of $0.97 to $1.12 per diluted share. Adjusted earnings are guided to a range of $1.25 to $1.40 per diluted share. Rogers guides its 2019 effective tax rate to be approximately 27-28%.

For the full year 2019, Rogers expects capital expenditures to be in a range of $50 to $60 million.

About Rogers Corporation

Rogers Corporation is a global leader in engineered materials to power, protect, and connect our world. With more than 180 years of materials science experience, Rogers delivers high-performance solutions that enable clean energy, internet connectivity, and safety and protection applications, as well as other technologies where reliability is critical. Rogers delivers Power Electronics Solutions for energy-efficient motor drives, e-Mobility and renewable energy; Elastomeric Material Solutions for sealing, vibration management and impact protection in mobile devices, transportation interiors, industrial equipment and performance apparel; and Advanced Connectivity Solutions for wireless infrastructure, automotive safety and radar systems. Headquartered in Arizona (USA), Rogers operates manufacturing facilities in the United States, China, Germany, Belgium, Hungary, and South Korea, with joint ventures and sales offices worldwide.